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Digitalisation & Algorithms Notes

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This is an extract of our Digitalisation & Algorithms document, which we sell as part of our Competition Law Notes collection written by the top tier of Oxford students.

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Digitalisation, Algorithms and Competition
The internet is seen as the closest thing you can imagine to perfect competition - prices are the lowest, quality is the best, there are unlimited buyers and sellers.
We are better off that we were 15 years ago - back then, if you went to a travel agent looking to purchase flights, they could tell you whatever they wanted because you didn't know better; nowadays,
we can search online for and find the cheapest available flights.
When you search today, we have minimal search costs because technology can second-guess your desires.
However, there is a darker side to the algorithm-driven economy:

Initially, the wave of digitalisation that benefitted us all, but then business subject to lots of competition and so adopted strategies to be able to compete more effectively.
The invisible hand of the market has been displaced by a digitalised hand on the internet - what you see online often does not represent the market.
o We work on the assumption that what we see is the market.
o Online providers can manipulate the digitalised hand to serve their requirements X's awareness of other providers of goods depends on what online providers choose to show you. Not everything happens organically.

1 - Behavioural Discrimination
Generally, discrimination can be a good thing - cheaper off-peak bus fares; cheaper cinema costs due to being a student. Without discrimination if all P were the same, it would be very inefficient
- makes economic sense.
Online, X can gather data about the user and can engage in almost perfect discrimination.

Moves from third degree group discrimination to first degree price discrimination. It has massive implications on transferral of wealth on society.
What the online sphere has added is the ability to engage in behavioural decoys to influence the user to make certain purchasing decisions.
o Everything you see/do is designed with you in mind, such as the price and the order in which you see things.

This links to dynamic pricing. Companies that offer DP also offer personalised pricing (PP):

At a simple level algorithms will look at the path you used - if you are a loyal customer who comes directly to the website, the algorithm will offer you the standard P.
If you come to the website through a search engine, the algorithm will offer you a reduced price because they assume that you have access to other prices via this search engine -
they want to lure you.
o Algorithm is not saying that it will charge the loyal customer more - framing is very important.
o When you order an Uber, it used to be simply based on dynamic pricing e.g. number of cars on the road, weather conditions. Nowadays, Uber has personalised pricing based on journey history, post-code etc.
It is not about the algorithm caring about you - that would be too expensive - rather, it is about the path, the computer, the time you took.

Markets are no longer homogenous. Even when you 'win', it's like a casino - the casino always wins, as they win every other time. There are ethical and social implications - is this competition or consumer law?

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